The debut Monday of ProShares' Bitcoin futures ETF known as the ProShares Bitcoin Strategy ETF (BITO) is a milestone that paves the way for more ETFs based on Bitcoin futures to come to market, but not ETFs that hold actual Bitcoin, according to analysts.
"Odds are that many of the Bitcoin Futures ETFs that are in the hopper now will amend their prospectuses to mirror BITO's futures-only approach and also list," says Ben Johnson, director of global exchange-traded fund research for Morningstar. "I don't think the SEC is in any hurry to give a green light to an ETF that invests directly in Bitcoin."
BITO is also expected to provide financial advisors and their clients an investment that tracks the price of Bitcoin more closely than do Bitcoin trusts, which invest in actual Bitcoin and trade over the counter.
The very popular Grayscale Bitcoin Trust (GBTC) is currently trading at an 18% discount to its net asset value, which is the value of its assets minus liabilities, while the Osprey Bitcoin Trust (OBTC) is priced at a 22% discount to NAV. Both have been known for prices that swing between premiums and discounts to NAV, which add to the volatility of investment in an already volatile market.
"Futures-based Bitcoin ETFs offer a competing option to Grayscale Bitcoin Trust, which currently has nearly $40 billion but can suffer from significant premiums and discounts," noted Nathan Geraci, president of the ETF Store, an RIA that invests only in ETFs. "Advisors will have to weigh the potential costs of futures-based Bitcoin ETFs, including negative roll costs, with the potential portfolio benefits."
Negative roll costs are incurred when investors roll from one expiring futures contract into a later month and the later contract costs more than the current contract, which is the case for Bitcoin futures currently.
'Not a Placeholder'
The ProShares Bitcoin futures ETF follows the same investment strategy as the Bitcoin Strategy ProFund (BTCFX), a mutual fund launched by ProShares affiliate ProFunds on July 28, said Simeon Hyman, global investment strategist at ProShares. The mutual fund has just under $15 million in assets compared with $40 billion in the Grayscale Bitcoin Trust or $174 million in the Osprey Bitcoin Trust, but it more closely tracks the value of Bitcoin than they do.
Since its inception on July 28, BTCFX is up over 50%, like Bitcoin, while GBTC has gained 35% and OBTC hardly anything at all.
"We believe Bitcoin futures are perhaps the best place for price discovery," said Hyman, noting there is "400% more volume in CME Bitcoin futures than in Bitcoin spot trading at Coinbase … "This is not a second-class solution but a real robust one … Bitcoin futures is a first call solution, not a placeholder."
In early trading on Tuesday, the ProShares Bitcoin futures ETF was up 3% with over 500 million shares trading before retreating to about 2% higher. It is the biggest ETF launch so far this year, surpassing the debut of BUZZ in opening-day volume, according to Eric Balchunas, Bloomberg's senior ETF analyst.
The ETF provides diversification benefits for investors because Bitcoin is uncorrelated with traditional asset classes and does not file K-1 tax reports like many commodity ETFs, which can be a headache for investors and advisors.
